Banking » Guides » How to Choose the Right Savings Account for You?
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How to Choose the Right Savings Account for You?

Choosing a savings account requires 3 main steps: preparation, shopping around and opening the account. Here's how to get the best account for your needs.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor


Baruch Mann (Silvermann) is an experienced investor, financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

Review & Fact Check: Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Writer, Contributor


Baruch Mann (Silvermann) is an experienced investor, financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor


Baruch Mann (Silvermann) is an experienced investor, financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

Review & Fact Check: Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Financial Expert, The Smart Investor CEO


Baruch Mann (Silvermann) is a financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

You can trust the integrity of our unbiased, independent editorial staff. We may, however, receive compensation from the issuers of some products mentioned in this article. See how we make money.

Table Of Content

A savings account is actually something called a ‘time deposit.’

That means that you don’t really have the kind of access to it that you might think, or at least your bank doesn’t have to give it to you. They can actually require you to keep the money in the account for a set amount of time or to give them some form of notice before you take it out.

Now, it’s not something that generally happens with your account, but some institutions do impose limits on the number of times you can make transactions and withdrawals. That’s because there are actually federal limits on just how many times you can make a withdrawal on a savings account. And there are limits to the ways that you can do it as well.

For example, deposits are unlimited and there’s no penalty for you putting money into your account. On the other hand, if you take money out you may be limited to just six transactions.

Savings are a crucial part of financial stability. Whether you have an emergency fund or investment funds, savings can provide security against unforeseen events or situations. As you can see in this chart using 2019 FED Survey of Consumer Finances data, Americans are saving more. In 2016, American savings had a value of $0.92 trillion. This has steadily increased over time to reach $1.29 trillion in 2019.

How Much Americans Save

What is Good Savings Account Interest Rate?

As of October 2021, the national average for savings accounts is about 0.06% APY. So, any percentage that’s higher than that will give you an interest rate that is higher than what most people have. Usually, big banks pay around the national average or even lower.

Online banks tend to offer better deals. Credit Unions are also known to offer higher interest for savings accounts. You might want to check with credit unions before choosing which savings account you want to use.

Where Can I Put my Money to Earn the Most Interest?

If you have a large sum of money, putting it in the right place can allow you to make maximum interest so you can have even more money by the end of the year. High-yield savings accounts and checking accounts both can allow you to earn interest, but they aren’t the only option.

Look for checking accounts that offer welcome bonuses and extra interest for the first year of banking. Money market accounts usually offer a little higher interest than savings accounts. If you don’t think you need any of the money from your savings, you can open a CD. They offer the highest interest, but you face serious fees if you want to withdraw some of the money

How Much Interest Will I get on $1,000?

This depends on how the APY of your savings account. Some savings accounts are high yield, which means they earn more interest than other savings accounts. If you have a 0.01% APY and put $1,000 into a savings account you will earn about $0.10 a year. If you have a 1.5% APY (which is higher than most savings account offered by the average bank)  and put $1,000 into a savings account you will earn about $15 a year.

If you can put your money into a high yield savings account, you could earn about $5 or more after the course of year.

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Shop Around For The Right Saving Account 

Okay, so the first thing to look at when you’re trying to find a savings account for yourself is the money it’s going to cost you.

So, how much do you need to have in order to open the account? How much do you need to avoid added fees for a low balance? How much interest are you going to earn? All of these things are going to be important for you.

You also want to look at some of the extra features that you may be able to get like mobile deposits and even account alerts if you have a low balance. Look at everything that’s provided about your account including how you can initiate transfers and how long they take. 

1. Understand Your Needs

You want to compare the interest rates that you can get with your account, but you also want to look at some other factors. You want to know about the institution that you’re going to be dealing with too. And how that relates to your wants and interests.

  •  How Much Can You Deposit? – There may be a minimum amount required for you to open an account at a specific institution. You want to know what that minimum amount is so you’re prepared. It might be nothing. It might be $10 or for high interest savings accounts it could be $10,000 or more. If you don’t hit the minimum you’ll be charged fees.
  • Do You Intend To Make Withdrawals? – Do you want to make withdrawals from your account? If you do then how many are you planning to make in a month? What is the bank you’re looking at going to do about that? Will you have limits on how many withdrawals you can make? Are you going to have fines or fees if you go over the amount that you’re allowed? Are there ways of withdrawing money that don’t cost you money?
  • Are You Comfortable With Online Banking? – If you’re interested in online banking you may actually be able to save yourself some money. There are some accounts and banks that are entirely online while others might offer online services. Also, you can generally get higher interest through these accounts and have fewer fees and regulations. Not to mention you can access everything 24/7 online.
  • Are You Managing Multiple Accounts? – Maybe you have an account at a different financial institution as well as this one.If you do then you may want to take a look at the benefits of bringing all of your accounts to one institution or the other rather than keeping them separate.
  • Are You Making Regular Deposits? –  If you are going to make regular deposits you may want to take a closer look at some institutions that offer you benefits and bonuses for this. You may need to have a set amount coming in each month but if you’re hitting that mark you may as well get something for it, right?
  • Are You Saving for Long Term or Short? – You’ll want to look at some of the benefits that you can get for the type of saving you’re doing. If you have a short-term goal you may be willing to sacrifice the interest rate you can get later for one that you can get right now.

Based on data obtained from St.Louis Fed data, the personal saving rate declined to 3.6% as the global financial crisis kicked in, but the saving rate rose to 6.4% in 2008 and peaked at 12% in 2012. However, the personal saving rate declined to 6.4%, and the rate remained sluggish until 2020, and it achieved a new high of 13.7%.Chart: Personal Saving Rate in the U.S. 2006-2020

2. Compare Your Options

Here are the top things to pay attention when shopping around for savings account:

  • Interest Rates

This is one of the most important things and one of the ones that you probably actually think about, right? After all, you know that you want the best interest rate that you can get. That’s going to ensure you’re making as much as possible and your money is actually working for you.

Remember you’re looking at compounding interest in this process too. You’re earning interest on your money but also on the interest that you’ve already earned on your money and that’s definitely going to be a big benefit for you.

Make sure you’re keeping an eye on just how that works and that you’re looking for the best rates. When we talk about rates we’re talking about APY for the most part and this can be different from one institution to the next.

Make sure that you’re paying attention to that and that you’re comparing different places that you could be getting your accounts. You want to get the best features as well as the best interest rates.

  • Account Fees

Having to pay fees is definitely going to cut into the amount of money that you’re going to save and earn when it comes to your accounts.

So, how do you make sure that you’re not paying all those fees? You’re going to have to look at different institutions and you’ll need to pay close attention to just what the fees are that they charge.

There might be one for just opening your account or for having too low of a balance or making too many (or even any) withdrawals.

  • Online Banking

This is becoming a whole lot more popular lately and for good reason. There’s a whole lot that you can do with online banking that means you’re not forced to run to the bank all the time. You can just use your mobile device to get into your account and see what’s going on or what you want to do.

It’s important that you keep track of where you’re accessing your account and that you don’t log in using public accounts like those at your local library or coffee shop.

These can easily be hacked and your information could be compromised. When you’re using a private network, however, you could take care of your banking from anywhere.

Another great benefit is even being able to deposit your checks from anywhere you want. That gives you instant access without having to go to the bank to make that deposit in the first place.

The use of mobile banking as the primary banking method is more popular among younger households than older households, according to a 2019 FDIC report. At least 62% of young adults in the 15 to 24 years age bracket use mobile banking as the primary method to access bank account compared to only 8% of seniors in age 55 to 64 years who use mobile banking as the primary tool to access bank accounts. Chart: Use of Mobile Banking as Primary Method to Access Account in the U.S. 2019, by age

  • Opening Bonus

Look for institutions that are going to offer you a signing bonus.

These can vary in size and not all institutions offer them at all, but if you can get one it’s going to be completely free money and a big benefit for you.

  • Minimum Balance Requirement

When you first open that account you want to know just how much it’s going to cost you to keep the account open.

Then you want to know how much needs to stay there in order to make sure you’re not charged fees. You want this number to be low or even nothing at all because that’s going to help you if you ever find yourself with an emergency where you need that money.

  • Money Protection

You’re putting your money into an account with a financial institution because you want it to be safe. But you need to share a lot of information with that institution for them to do this.

So, make sure you’re looking at what they do to keep your personal information safe as well as your money. And don’t trust just anyone.

  • Automatic Transfers

If you can put your money into your savings account automatically you’re going to be far more likely to actually do it.

So, see if you can set up transfers to occur automatically every time you get paid or every month. You can set specific amounts for how much to put in the account but you want to make sure that you’re not being charged any fees or fines to do this.

  • Customer Service

How good is that branch about handling any of your concerns or problems? Do they seem like they really want to help you?

Are they going to get the problem resolved quickly? Are they easy to reach when you find out that you have a problem? These are all important ways to make sure you’re getting the attention that you deserve.

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3. Open Your Saving Account

Okay, so you’re ready to open up your account so what do you do? It shouldn’t be too difficult In fact, you should be able to just make a phone call or walk into the branch or even get online and start the account. Plus you should be able to do it in a few minutes. 

With any type of account you want to be able to get good access and you want to know that you can link different accounts as well, so you can transfer money back and forth whenever you want to. Just make sure that you have all of the documents you’ll need to get that account going.

You may need to bring in a bill that has your mailing address and name, some form of photo ID like a passport, military ID or driver’s license or even a secondary form of ID like a social security card, birth certificate or bank statement from another financial institution.

If you’re looking at opening an account with a credit union instead of a regular bank you may need to provide additional documentation that says you’re eligible for that account.

These institutions sometimes have more strict requirements for where their members work or causes they support, for example.

Just make sure that you’re reading through everything before you sign. You don’t want to find yourself with any kind of fees, fines or other drawbacks that you weren’t thinking about. You want to know exactly what you’re getting and what you’re going to be paying in order to get it as well.

Savings Accounts' Best Uses

A savings account can be used for a variety of purposes. These are the most compelling reasons to employ one.

  • Put Money Towards Your Goals
  • Prepare for the unexpected.
  • Large expenses should be covered.

A majority of Americans are saving for retirement, but at least 77.02% of the savings accounts have less than $15,000. This is according to a report by Motley Fool, which shows 21.99% of savings accounts in the US have a balance of $1000 to $5000. On either end of the scale, 2.97% of savings accounts have zero balance, while only 4.38% of savings accounts held more than $100,000.

Chart: Amount of Money Saved in Savings Accounts in the U.S. 2020

1. Put Money Towards Your Goals

The most important function of a savings account is to help you achieve your financial objectives. If you're trying to save for a down payment on a home, you're well aware that it's not easy.

It is, however, much easier to save in an account other than your bank account, which has dollars flowing in and out all the time.

Savings accounts allow you to deposit funds without having to withdraw them. If you think of your savings as a piggy bank, you might be able to avoid the desire to spend them.

2. Be prepared in case of an emergency

Emergencies happen unexpectedly and are not always predictable. They can be challenging to manage if you don't have any money.

Savings accounts are excellent for putting money aside and building up an emergency reserve. The more you can set aside, the better off you'll be in the event of an emergency.

3. Budget for Major Expenses

Other major expenses can be covered through savings accounts. For example, you may need to purchase a new computer. You can save the money in a short period of time, thus a savings account is the ideal choice.

Regardless of why you want to save, these accounts make it a lot easier. It can be difficult to only use a checking account or cash because you are far more likely to spend your savings that way.

Can I Lose Money in a Savings Account?

Saving money is a fundamental part of financial security. This is common knowledge. High-yield savings accounts pay interest rates far higher than traditional savings accounts. The best savings accounts do not require you to pay monthly fees, or keep a minimum amount.

There are two main factors that could reduce your profit if you decide to save money: inflation and taxes. You are losing money if you use a checking or savings account to hold most of your assets.

Let's suppose your high-yield savings accounts pays 1% interest for your $10,000 deposit. If you leave it unattended for a year, your account will be worth $10,100.

To have the same purchasing power, your money would need to earn $300 if the inflation rate is 3.3%. You lose money if your high-yield savings account does not grow at the same pace as inflation. Traditional investment accounts and high-yield money markets offer higher rates than average and can beat inflation. This will allow your money to grow exponentially.

Your high-yield savings account can also lose money due to taxes. While you don't have to pay tax on the initial deposit, accrued interest will be subject to ordinary income tax. You must report any interest earned in excess of $10 from your interest-bearing account within one year. You are not taxed for any deposits to your account. Only the interest earned is. Uncle Sam receives a percentage of every dollar earned in interest. The tax rate on most income is the same as your other income.

Are Savings Accounts Worth It?

You should keep some of your money in savings. How much should it be? It all depends on your financial situation as well as your goals for the next five years.

You might want to put any extra cash aside after paying your bills and basic necessities, into a high yield savings account. A high-yield savings accounts can help you earn more interest and still have access to your cash whenever you need it. You may be subject to penalties if your money is in a Certificate of deposit (CD) or IRA account.

The liquid nature of traditional savings accounts means that you can withdraw your money immediately or at any time. You can insure each account up to $250,000 with either the Federal Deposit Insurance Corporation for bank accounts, or the National Credit Union Share Insurance Fund for credit union accounts.

However, traditional savings accounts offer very little interest when compared to other types. You must also pay income tax on the money you put into traditional savings accounts. Finally, any interest earned will be subject to the full income tax rate. If you have a steady income and an emergency fund that covers at least three to six month's worth of expenses, then you might consider investing your extra cash in a place that is more likely to grow over the long-term.

Is Inflation Something I Should Worry About?

Because there is no way to avoid inflation, you should not be concerned about it. That does not, however, imply that your savings accounts are the greatest place to save for retirement. In certain circumstances, you'll want to look for better long-term saving options.

These accounts are ideal for short-term savings and are unlikely to be affected by inflation. You can, however, examine the following options.

  • For Long-Term Investments – When it comes to long-term savings, you should consider a 401k or an IRA. They provide a strong annual return and help you beat inflation. They also make it easier to save money by allowing direct deposits.
  • Savings for the Short Term – If you need to save money for a short period of time, set aside more money than you believe you'll need. That way, you may pay for a down payment on a house or a vacation without stress. Inflation will not vary much in a year, so you may not even notice it.

Opening a high-yield CD is another option. You will have more money than you put in when it matures, usually much more than the amount affected by inflation. Most CDs take a few years to mature before you can access the funds, so it's better if you don't need the money right away.

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Many people choose to put their savings into a savings account at the same bank they have their checking account. This allows you to transfer funds easily and keep track of your money. If your main concern is earning the most interest though, you might want to consider using an alternative option.

CDs offer higher interest and are a federally regulated way to keep your money safe and tucked away. You will not be able to withdraw the money through without fees and penalties. Money market funds, money market deposit accounts, treasury bills, and bonds are also all common ways to put away money for savings.

Savings accounts are regulated by the federal government, which means your money is protected the entire time it’s in the savings account. High-yield savings accounts are protected by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Association (NCUA).

The federal regulations for withdrawals from a savings account also are in place for high-yield savings accounts just as they are for normal savings accounts.

Savings accounts are generally a good idea if you need a safe place to tuck away some money, but there are some cons. The main one is that they almost always have minimum balance requirements.

This means if you need some money, you will have to face penalties and fees to withdraw if it will make the balance lower than the minimum.  Savings accounts also have lower interest than other options for keeping your money in savings.

Federal limits for withdrawing also apply for savings accounts. This means you can only withdraw money certain times a month and then you will have to wait until the next month if you need funds.

CDs are quite similar to savings accounts, but they pay much higher interest rates. They are both a safe place to keep money for the future and a way to earn interest on your money.

CDs do not permit you to touch the money while it is in the account. Savings accounts typically allow you to withdraw or transfer funds 1-3 times per month, depending on the bank. You don't have to worry about losing your money because they're both federally insured.

A savings account usually requires only a small amount of money to open and a small minimum balance. CDs, on the other hand, have a higher minimum balance requirement and typically require you to keep the balance for the duration of the contract or risk losing interest accrued.

It is determined by the cost of the house. It may be a better decision to save only for a large down payment on a home rather than the entire purchase price. Saving for a house can take years, and you may end up spending more money renting than you would if you took out a mortgage.

If you want to put down $40,000 on a house in the next two years, you'll need to save at least $3333.33 per month. You will then be able to make a substantial down payment and finance the remainder of the house.

This is determined by what you are saving for and how much money you believe you will need to achieve your end goal. If you want to pay for a $10,000 car in cash over the next five years, you'll need to save at least $167 per month. The percentage of this amount is determined by your annual income.

Some experts recommend that you save 20% of your income, but this is not a hard and fast rule. Some people will need to save more money than others, for example, if they have a large family or require emergency funds.

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